Taxes and the martini lunch

George McGovern's 1972 Presidential bid never quite took off, but one of his stump lines did.

"There is something fundamentally wrong with the tax system," that quip went, "when it allows a corporate executive to deduct his $20 martini lunch while a workingman cannot deduct the price of his bologna sandwich."

Richard Nixon, who enjoyed the occasional martini himself, crushed McGovern in the 1972 election and ignored his prairie populism. Four years later, Jimmy Carter would pick up McGovern's baton and try to crack down on business meal tax breaks. But Congress blocked him.

Jill Chen | Vetta | Getty Images

So guess who would end up taking the first bite out of the martini lunch? That renowned tax-slasher Ronald Reagan. His 1986 tax-code overhaul, best remembered today for lowering overall rates, reduced the deductibility of business meals from 100 to 80 percent. In 1993, the Clinton administration would push that deductibility rate down to 50 percent, and it hasn't budged since.

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The restaurant lobby has never been happy about this. And today — with anti-taxers totally in charge on Capitol Hill — the National Restaurant Association sees a chance to restore the business meal to its three-martini glory.

Well, maybe not to three-martini glory. Mid-day martinis haven't actually been in fashion for years. The NRA's arguments on behalf of full deductibility for business meals, on the other hand, haven't changed in four decades. Allowing businesses to deduct the full cost of their employees' work-related meals, the NRA insists, will always be good for restaurants, good for small business, and good for workers.

How well do the NRA's arguments hold up? Let's look at the numbers.

In the heat of the 1993 debate, the lobby group predicted that if businesses were able to write off only half the cost of their business meals (instead of 80 percent), restaurant industry sales would plummet by $3.8 billion and 165,000 jobs would be lost in just the first year.

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The opposite occurred. In the year after the reform went into effect on January 1, 1994, sales at full-service restaurants grew by 3.5 percent, outstripping overall U.S. economic growth, according to Census and Labor Department data. And instead of the NRA's predicted loss of 165,000 jobs, full-service restaurant payrolls grew by 132,300. That was a 4-percent increase, compared to only 3.5 percent growth in national employment.

Despite this dubious prediction record, the NRA has doubled down on the crystal-ball business. The lobby group's web site now proclaims that "a return to full deductibility" would boost business-meal sales by an astounding $22 billion and add an even more incredible 442,000 jobs.

But let's suspend disbelief here and consider this new NRA prediction absolutely credible. Would a bigger tax break for business meals be justified? Not in the least. A dollar spent dining out, remember, is a dollar that could be spent elsewhere in the economy. Why favor this particular industry?

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After all, it's not as if the restaurant industry as a whole is known for high quality employment opportunities. Restaurant jobs rate as among our society's lowest-paid — and for that the National Restaurant Association itself deserves much of the blame. NRA leaders have been waging an unrelenting war against minimum-wage increases and paid sick leave benefits. Among their crowning achievements: keeping the federal minimum wage for tipped workers stuck at $2.13 per hour since 1991.

Employers, to be sure, are supposed to ensure that their servers' wages plus tips add up to at least the federal minimum of $7.25 per hour, but this safeguard has never been even close to adequately enforced.

We don't need more tax perks for business meals. We need fewer. Even the current 50 percent business-meal deduction allowance comes with significant costs. The Congressional Progressive Caucus estimates that lowering the deductibility level from 50 to 25 percent would generate $70 billion in additional revenue over the next decade.

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We need a new version of McGovern's stump line: "There is something fundamentally wrong with a tax system that subsidizes high-priced business executive lunches at low-paying restaurants while working men and women cannot deduct the price of their turkey sandwiches."

Commentary by Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies. Follow her on Twitter @Anderson_IPS.

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